That’s a question that popped into my head recently. What’s their origin story? They all have to start somewhere. The people I’m going to look at developed and made their billion themselves. For the most part, they grew up under normal circumstances. Yes, they almost always had more advantages than the Average Joe. It’s tough to become a billionaire, so I can overlook a head start such as growing up in an upper-class family.
There are also a couple of notable exceptions, which I will cover. Hopefully, there’s something we can learn from them as well.
If we look at a few of them, can we identify commonalities and potentially duplicate their formulas?
Start a Company
One obvious way to become a billionaire is to start a company. That’s the vast majority of billionaires. I could go through any number of examples, but some household names include Bill Gates. Jeff Bezos, Mark Zuckerberg.
I realized after I picked the names that they all made their billions by starting technology companies. Technology scales due to vast network effects. That said, I’m still not sure how Amazon scales the way it does. That amazes me more than writing an operating system (Gates) and a social media app (Zuckerberg).
Invest Extraordinarily Well
Here’s where we get into the people who inspired me to write this article. Every reader here knows Warren Buffett and associates him with being an incredible investor. However, expert after expert, including Buffett himself, have said that picking stocks is a fool’s game. Academic after academic has shown that index investing always wins in the long run.
However, when you run the math, it’s very much impossible to become a billionaire with index investing. On the surface, even if it were possible, there are hundreds of millions of others doing it, so you’d be a drop in an ocean of billionaires.
So how did Warren Buffett do it? The best I can tell is that he invested very well, extremely early – when many people didn’t have much access to the stock market. We’re talking about days when you had to call a stockbroker, and he might charge a couple of hundred dollars in commission. Imagine being an early investor in Coca-Cola?
Another way Warren Buffett made his billions was by leveraging other people’s money. Often, leverage can be dangerous, but he realized that investing in insurance is different. People pay premiums upfront and only collect their money down the line. In the meantime, Buffett could use that money to grow his empire. I’m not sure how he did this legally, because it sounds kind of Ponzi scheme-ish. Even worse, it seems as if there were a bunch of claims at the same time, which could bring everything down.
As Berkshire Hathaway got bigger, Buffett got access to companies that the average investor simply doesn’t have. Mutual fund managers have similar access, though, and they haven’t duplicated Buffett’s success outside of possibly Bill Miller’s run with Legg Mason Value Trust in the early 1990s.
Bill Ackman is another well-known name who made billions by investing. It seems he started a hedge fund out of Harvard Business School. The hedge fund took off with some great investments. He has high conviction in the companies he invests in. His activist investing can scale to steer the company in a direction that makes him money. Finally, he has made bold and contrarian investments that have paid off.
Develop a Brand
There are a few people who have crossed the billion-dollar mark in developing a brand. The first name that came to my mind was Kim Kardashian. In this section, I am crediting her as a brand. She does have a number of companies, but they take advantage of her fame. I don’t think the companies would have been nearly as successful without her brand power.
Another powerhouse brand is influencer Mr. Beast. Some people estimate his net worth at around a billion dollars, and others a little more. Somewhat like the technology CEOs above, YouTube scales incredibly well. If I were to put it in terms of a TV show, he’s got the most popular show on the only channel that receives the majority of advertising dollars.
Develop an Extraordinary Talent
This category includes such stars as Michael Jordan and Taylor Swift. There’s some overlap between this and Develop a Brand above. Taylor Swift and Michael Jordan are definitely masters of their brand. However, they are also widely recognized as the best at what they do. (Arguably, I could have included Mr. Beast in this category, with this extraordinary talent being short video attention-grabbing. I felt like the talent of Michael Jordan was on a different level than Mr. Beast.)
Sometimes being a star can barely get you to the billion-dollar mark. Taylor Swift’s estimated net worth is between $1.5 billion and $2 billion. Being the GOAT in basketball got Michael Jordan to around $4 billion, but the GOAT in football (Tom Brady) is only worth around $300 million. Tom Cruise has been a Hollywood A-lister for decades and is estimated to be worth around $600 million. Elton John may be Tom Cruise’s musical twin with around $600 million as well.
There are probably some people thinking, “What? Mr. Beast has more money than Tom Cruise?” That’s what my research says.
Get Lucky
There have been several billion-dollar lottery jackpots. I’m only including this one for completeness.
Inherit and Invest from your Parents
This is where I start to create categories for some famous people. This category came from trying to categorize Donald Trump’s money. A New York Times investigation in 2018 found that he inherited around $413 million from his father. That’s money adjusted for inflation. If he invested in just an S&P 500 (or maybe the Dow 30 in those olden days), it could have been worth more than Warren Buffett.
From there, he’s invested it in a lot of ways, making some money and losing some money. Most recently, it seems that his money has come from crypto schemes and a social media company (Truth Social) that makes little revenue and has few users.
Hybrids
Some billionaires seemed to fit into more than one category.
Start a Company and Invest Well
Peter Thiel co-founded PayPal, which was sold to eBay. He used some of that money to become the first outside investor in Facebook. He also co-founded Palantir, which has been in the news a lot lately. On top of all that, he has invested in many successful start-ups before they went public.
If all that wasn’t enough, he did a lot of this investing inside of a Scandalous Roth IRA and probably never has to pay taxes on more than a hundred million dollars.
The Winklevoss Twins are also examples of starting a company and investing well. I knew about their early investment in crypto, but I have never heard of their Gemini crypto company.
A Little Bit of Everything
I have been trying to find a place to put Elon Musk. His path to billions is very complicated. He started out by founding a company named Zip2, which made city guides for newspapers. The sale of that company gave him around $20 million to invest further. That money went into a payment company called X.com (not the Twitter version that we know today), which merged with PayPal and was later sold to eBay.
He used this money to start SpaceX in 2002 and invest in Tesla in 2004. SpaceX almost failed, but in 2002, it was able to get a big billion-dollar NASA contract after finally completing a flight that proved the concept around 2008. He was an early investor in Tesla and worked to remake the company and effectively oust the original founders. It also almost failed in 2008 due to the financial crisis.
Tesla makes a lot of its profits from tax credits, which is part of Elon’s genius in working the system. With a little help from AI, it seems that it got around $11 billion in government credits while the cars themselves earned a profit of around $33 billion.
Finally, he recently got a compensation of a trillion dollars approved by Tesla’s board. It will take some time and require some very difficult standards to be met. A large part of how he was able to get this was by threatening to leave Tesla. Many say that the board realized that Elon’s brand was so important to Tesla that it was a wise investment in its future.
It could be said that he made his billions from everything: founding a company, investing well, developing a brand, and being extremely talented.
How Do You Become a Billionaire?
It’s not going to be easy. If it were easy, everyone would be billionaires. What of the above is feasible?
Let’s cross off Getting Lucky. You can’t count on winning a billion-dollar lottery. That’s not how math works.
I’m also going to cross off Develop a Brand. Building a brand is SO extremely competitive nowadays. When my kids were younger, they wanted to be the next Mr. Beast. Now they realize that they can’t really compete with the outlandish things he does with budgets of multi-million-dollar per video. There will always be new huge brands coming down the pike, but I view it as a combination of talent and luck that is similar to winning the lottery.
Next up is Develop an Extraordinary Talent. There aren’t a lot of billionaire spots available with this. As we saw above, it can be hit or miss. I do question the results of what I found while searching, though. For people like Tom Cruise and Elton John, it may be reporting estimated earnings, but perhaps they’ve been investing in the stock market for decades. It’s unclear to me if that’s taken into account. I just calculated the growth of $20 million invested in the S&P 500 from 2000 to today, and it grew to $140 million.
I will count being a household name star as a legit path to a billion dollars. What are your odds of that, though?
Now let’s look at Invest Extraordinarily Well. I could only think of a couple of examples, but I’m sure there are more. I don’t have the stomach to make big bets on things that other people think have low odds of success. If something is likely to be a success, other people would have already invested in it. Unless you are into venture capital, it is impossible to invest in an AI company and make a billion now. The ship to a billionaire status with Bitcoin has sailed.
Finally, we are at Start a Company. That seems like the best single path to billionaire status. Yes, there are a lot of companies started, and a very small percentage will make their founders a billion dollars. It still seems like that’s where the vast majority of billionaires come from. Perhaps the only thing close is being an heir to someone who started a company and investing that money well.
That brings me to my ultimate conclusion. It seems like the hybrid approach is the best. Let’s assume that you start a company and use that money to invest well. Some investments will pay off and others won’t, but hopefully, having millions will give you some insider access, and making a 15% annual return is possible. If you were able to make $20 million from the company and invest it for 30 years at that 15% return, you’d have $1.3 billion. Of course, inflation will eat into that, and you’ll need some money to live, but this also assumes that you do nothing else. (Investing well to make that 15% return could be a full-time job, though.) Also, if you made your $20 million at age 30, you are now 60 years old.
Are you ready to be a billionaire? Let me know in the comments.
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